A mining approach to sustainability

Exxaro is built on a strong brand promise. “Everything we do and deliver today will allow others to realise their vision tomorrow”. Since our formation as South Africa’s largest BEE-empowered diversified resources company in November 2006, this has been a cornerstone of Exxaro’s business, strategy and culture. It has influenced our drive towards sustainable development and our move towards a more mature definition of what sustainability means for Exxaro.

There is a plethora of literature and research on these topics, and each source has a different interpretation of the concepts. Our approach to sustainability is informed by global best practice on Innovation for Sustainability and localised by formal charters that define our goals and commitment to stakeholders. These charters are guided by South African legislation and beneficiation strategy, King (III) recommendations on corporate governance, the JSE Socially Responsible Investment (SRI) Index requirements and international benchmarks such as the Global Reporting Initiative (GRI), the United Nations Global Compact, and the International Council on Mining and Metals.

What does sustainability mean for Exxaro?

For Exxaro, sustainability is about securing the future. Our aim is to harmonise business, community and environmental needs and obligations to enable Exxaro to achieve its founding goal of being a company that makes a positive social and economic contribution to South Africa. The concept figures prominently in the way we do business:

  • Of Exxaro’s nine aspirations, five are directly related to sustainability (relevance in the 22nd century, growth, mining charter, carbon neutral, and employer of choice)
  • Of Exxaro’s seven non-negotiable principles, three relate to sustainability (cause no harm, sound governance, leaving a legacy in communities)
  • Of our five strategic focus areas, ensuring Exxaro’s sustainability is first

In Exxaro, the term sustainability denotes the collective factors and drivers that either threaten or help create our long-term survival, growth and contribution to society. What is clear is that when the whole picture is understood and crystallised, a broad-thinking approach has to be adopted.

Since inception in 2006, Exxaro has employed the triple bottom-line framework to address sustainable development. While adequate for many organisations and in its time, we now believe an organisation of Exxaro’s size requires a more mature management model and we have accordingly adopted the five capitals model.

The term ‘capital’ refers to anything (physical, intangible or virtual) from which you can extract revenue or a yield. The five capitals model describes five types of sustainability ‘capital’ – natural, human, social, manufactured and financial – and organises each issue or challenge into one of these categories. This creates a bird’s-eye view of all our sustainability priorities across the business, and enables Exxaro to manage them appropriately. It enables us to view sustainability as a place of balance and health, as opposed to the process by which you grow into that place – which is sustainable development.

Being able to organise issues this way makes it easier for Exxaro to identify areas for improvement, establish programmes to address gaps, and clearly delineate the roles and responsibilities of certain functions to meet our sustainability objectives.

The benefits for the business are clear to see. These include reduced and avoided costs, better risk management, greater responsiveness in volatile markets, more motivated and committed staff, and enhanced intellectual capital, lower costs of compliance, improved reputation with key stakeholders and greater influence with regulators, a stronger brand, greater customer loyalty, lower cost of capital, new products and processes and attracting and retaining the right talent.

Supporting the Exxaro strategy
Exxaro has five strategic focus areas shown below. The five capitals sustainability framework is a means to support Exxaro in reaching its strategic objectives and complements the five strategic focus areas.

  1. Ensure Exxaro’s sustainability;
  2. Protect and build Exxaro’s reputation;
  3. Develop Exxaro’s leadership and people;
  4. Improve Exxaro’s portfolio; and
  5. Achieve operational excellence.

Linking in compliance, risks and material issues
Once the different capitals are understood, and the key components relevant to each sustainability capital are understood, integrating views can be built in a methodical process:

  • The first considerations affecting an organisation’s sustainability are the minimum compliance requirements, standards or best practices for each component in each sustainability capital.
  • Second, what are the major enterprise risks facing the organisation and where exactly do they lie in the sustainability capitals framework? An integral part of this process is evaluating key impacts, which is managed via an internal integrated audit every year at all business units, covering safety, heath, environment and community. Results are incorporated into the group risk management process.
  • Third, what are the material issues for the organisation and how do they affect the organisation’s ability to achieve its strategic objectives?
  • Stakeholder issues are also critical in determining where the focus should be to ensure the organisation’s sustainability

These views, which flesh out the sustainability framework, drive the need to act proactively to address compliance requirements, risks and issues. In addition, beneficial opportunities for all stakeholders are factored in to give Exxaro a fuller understanding of the breadth and depth of the elements that need to be addressed to secure the future.

Sustainability – the political context
The prosperity of South Africa is inseparably linked to the sustainability of our world-class and dynamic mining sector which contributes almost one fifth of the country’s GDP. Given the wealth of South Africa’s mineral resources, it is a sector that holds much promise, as well as the expectations of thousands of unemployed citizens. However it is also a sector facing enormous challenges.

From environmental issues such as climate change and water, stricter regulatory environments, ageing infrastructure and new technological advancements to social unrest and economic downturns, the challenges are vast. In the African context – where bigger challenges combine with sometimes bigger potential, it is imperative that we take stock, and reassess the proverbial bigger picture.

In any business or sector, short-term factors often grab the headlines. However, it is the long-term trends that will produce a different world in 2030 and beyond. It is the long-term considerations that should shape our thinking and are doing so at Exxaro.

From a mining company perspective, it is critical we understand the contextual elements including:

  • Earth’s limited natural resources: diminishing mineral resources, water scarcity, strain on agricultural land;
  • Changing demographics: significant aging world population – except in Africa where the populace is largely young and unemployed, uneven population growth;
  • Proliferating technology and knowledge: new technologies are developed quicker and new products have shorter life spans;
  • Increasing sustainability, regulatory and social demands; and
  • New infrastructure in less-developed places.

As resources become scarcer, stakeholders more informed, and green pressures increase, governments across the world will play a more aggressive role to ensure strategic resources are mined in a responsible, safe and beneficial manner – for both state and societies.

This presents generic challenges to mining investors in Africa:

  • Political stability: openness to foreign direct investment, transparent legal and regulatory environment, monetary and fiscal discipline, security of tenure, resource nationalism;
  • Infrastructure/logistical limitations: aging road, water and electricity infrastructure, bottlenecks due to insufficient capital allocation, inefficient service delivery; and
  • Skills shortages: quality of secondary and tertiary education, scientific research, new patents, aging workforce, productivity.

African populations are mostly young and unemployed, which presents major challenges in terms of creating a positive and hope-filled future for these people. South Africa’s GDP growth rate is too slow to tackle unemployment and poverty in any meaningful way. Using China’s 2011 growth rate of 9% as example, that country would double the size of its economy in just eight years. At a growth rate of 3%, South Africa will need more than 23 years to double its GDP.

In other words, what South Africa needs to achieve in the next few years will realistically take a generation to accomplish. And that is time the country does not have, given the escalating incidence of civil protest. South Africa cannot afford the social or financial costs of another Marikana. These are the very costs the mining charter sought to prevent with its vision of facilitating sustainable transformation, growth and development of a mining industry already in decline.

We believe that a comprehensive and successful sustainability strategy will enable us to manage the short, medium and long-term challenges facing our business, our industry and our country. Managing our social and labour plans through the social element of the model and our workplace skills plans through the human capital element will naturally lead to the transformation so needed in our country. Exxaro will be contributing to local economies while growing our business sustainably. And we will meet our obligations to the mining charter and contribute to the successful implementation of the national development plan.